Wednesday, February 28, 2007

Philippine mid-term elections: politicians should spare the economy

WILL the politicians, both from the opposition and the administration, please stop politicizing the country’s economy? Will they please stop using it as fodder for election propaganda? This is the only way we can sustain the modest growth we have achieved so far.

It’s funny that Malacañang keeps on harping about its supposed “economic performance,” citing the 5-percent to 6-percent growth rate achieved in the last three years, the gains in the stock market, the recovery of exports, among others, as part of the ruling party’s campaign spiels.

These are real gains, alright, but in truth Malacañang has little to do with it at all. A look at the national income accounts shows the country’s growth was largely driven by consumption financed by remittances, the rapid growth of cyberservices and the recovery in the export sector. The dynamics of these growth drivers have nothing to do with Palace occupants.

In the last three years, Malacañang has simply being doing whack-a-mole, suppressing scandal after scandal and crisis after political crisis that pop up here and there, while forgetting to enact the annual budget or repair a bridge or a road that farmers needed to bring their produce to the market.

If one looks at the national income accounts, one sees that the government expenditures in the last three years are flat or negative despite the fact that the government has been collecting higher VAT rates (12 percent) and higher corporate taxes (35 percent). In fact, the government has actually been reversing the policy reforms that the country achieved after the 1986 Edsa people power revolution. The most recent example is the increase in tariff rates for steel products from 3 percent to 7 percent—one that would surely penalize the construction sector.

So the real score is that we have achieved such modest growth rates despite having political leaders hobbling us. We could have achieved some more, probably on a par with our fast-growing neighbors, if only the government had been really attentive to the pulse of the economy.

But it’s also wrong for the opposition to denigrate the gains of the economy, no matter how modest by Chinese or Indian standards. The opposition, in a full page ad in one newspaper, said the country’s economic gains are “a mirage” and that all of them are “insignificant.” That’s unfair.

These growth rates are neither a mirage nor too insignificant to bother about, because they are the gains contributed by the country’s private business sector, the entrepreneurs, foreign investors and the OFWs themselves who sacrificed a lot just to send the dollars that the country badly needs. Everybody should recognize this fact. Are the 250,000 new jobs created by outsourcing a mirage? Is the $47-billion export generated by the private sector, about $30 billion of which came from electronics, insignificant?

For all the talk about China being the world’s factory, the fact remains that the Philippine manufacturing sector has been doing well at 4-percent to 5-percent growth rates in the last three years. Even economist Cielito Habito, former director general of Neda, recognizes this fact.

Somehow, the billions of dollars being sent home by overseas Filipinos have something to do with this. This money is converted into purchases of products produced by our factories in the same way that they keep the malls and the property sector booming. But we should credit the ingenuity of our factory managers and workers for holding their ground against competing products here and in the world markets.

Undeniably, joblessness is still high in the Philippines. It’s also true that the country’s economic growth is “narrow” as most critics are wont to say. Being driven largely by the services sector, the benefits so far have largely been felt by those in urban areas. But the Philippines has to start somewhere and the numbers these days say there are growth areas the country could work on to accelerate and broaden the economic base.

Asian tigers like Taiwan and South Korea took a decade or two of sustained 5-percent to 7-percent economic growth before they could address massive poverty. These days, China and India have been growing at 8 percent to 10 percent and yet, if we look beyond the surface, they still have a lot of things to do to touch the lives of their miserable masses.

Recent reports by international organizations, such as the International Labor Organization and the United Nations Development Program, continue to deplore jobless growth in these parts of the Asia-Pacific Region. So these countries must sustain that growth trajectory over the next decade before one sees a qualitative change in the lives of their impoverished sectors.

It’s the same tack that we should do, besides the usual equity-enhancing measures—and politicians should not reduce our chances for doing so by muddling the issues and denigrating our modest gains.

In international conferences, one often observes that while other countries discuss their gains and the “challenges” they need to overcome to usher in growth, Filipinos are beating their breasts—telling the whole world things are not changing, the Philippines is doomed forever and only the Second Coming of Christ could save the Filipino from damnation. No wonder other countries look down on us despite positive changes we’ve achieved. Such self-defeating negativity from what should have been more enlightened Filipinos, are aggravated by the sweeping remarks of political leaders from either side of the fence who interpret the data to either demolish the other or embellish one’s accomplishment.

From the structural point of view, what enabled the country from achieving such modest growth is the increasing share of the globalized sectors of the economy. The rough estimate seems to be that these sectors now account for more than 60 percent of the country’s GDP. That had somehow partially shielded the economy by the gyrations of Philippine politics. They are mostly the fruits of the painstaking policy reforms started by President Corazon Aquino after the 1986 Edsa revolution and were sustained by succeeding administrations. Specifically, the deregulation and infusion of more competition in transportation, storage and communications industries, as well as reforms in the country’s tariff system.

The task, therefore, for both the ruling coalition and the opposition is to strengthen these dynamics by sparing the economy from becoming collateral damage in their exchanges of political firebombs.

Certainly, debates about the economy are part of the political process. In presidential elections in the US, Republicans would rather look about America being a “house on the hill” while Democrats hammer on the “great American dream” and how to bring ordinary people there. Our politicians could do no less and leave hard-nosed economic analysis to independent parties that have no hidden agenda.

Monday, February 26, 2007

Daily slaughter of the innocents

There are murderers on the loose in Metro Manila. They have killed 196 people and injured 4,339 persons in the metropolis in 2006. These numbers mean that they maim 12 persons each day and kill one every other day. No, they are not the usual gun-toting killers because their favorite weapons are their vehicles: cars, trucks, buses and jeepneys.

If we assume the same figure each year, it means that more than a thousand innocent people died and 22,000 injured in the last five years. Certainly, this is massacre using the bluntest of weapons. But the greatest tragedy of all is that the Philippine society as a whole doesn’t seem to care. Politicians, “civil-society” groups, do-gooders and the gallery of save-the-world types don’t even mention this mayhem in the streets.

The killers are vehicle drivers and their victims: the pedestrians, as reported by the “Metro Manila Accident Reporting and Analysis System” of the Metropolitan Manila Development Authority (MMDA).

What this statistical report suggests is that Metro Manila, especially cities like Quezon City and Makati, has become a killer zone, a cannibal of its own children.

What’s the government doing about this now? We would like to know because we really don’t know who will be fatally hit by the bus next time. It might be the ones close to our hearts: our children crossing the streets from schools, our grandparents buying medicine, our spouse carrying food stuff from the grocery stores. It may be us.

Policymakers in this country, starting right at the Office of the President or the Department of Transportation and Communications, down to MMDA and the local government units, should really take this issue seriously. By the sheer volume of the victims, this issue should dwarf all other issues related to health and the loss to lives and limb. More so because it almost assumes the proportion of class conflict: pedestrians, the hoi polloi, versus vehicle owners.

That seems to be an oversimplification but the truth is that 70 percent of travel demand, or seven out of 10 people, move around to work, home and leisure, using public transport. That should suggest that those who are killed—those almost 196 unfortunate souls killed each day and 200 injured—mostly belong to the poorer segments of society who can’t afford the latest or even the second-hand beaten-up Toyota or Nissan.

At the root of this problem is attitudinal. Drivers and vehicle owners here simply don’t respect pedestrians. And we guess it reflects the contempt of the haves toward the have-nots in society.

Many bus or jeepney drivers are peons themselves but, because of lack of proper orientation and training on proper driving behavior, many simply carry the same negative attitude toward pedestrians. When a pedestrian raises a hand to signal an intention to cross, drivers here would simply blow their horns as they press the accelerator to bully pedestrians off the street. No wonder, accidents are common.

The immediate solution goes right smack to better traffic law enforcement. For long, traffic managers in this country have allowed rascals behind the wheels to go around violating traffic rules, especially on speed limits and traffic lights.

Of course, most of the drivers here actually don’t know traffic rules as it is common knowledge that people from the Land Transportation Office (LTO) would issue them licenses anyway —presumably for a fee. Thus, revamping LTO’s licensing system, making it transparent, is certainly one solution. If the government has the will, the government may actually outsource this function where the private sector could bid for the right to deliver this service based on certain criteria like cost-effectiveness, transparency and effectiveness.

Traffic managers and enforcers themselves, of course, are part of the problem. Just like vehicle owners and drivers who see pedestrians as lesser mortals, people who run these traffic management agencies have the same attitude toward the ordinary man on the street.

They see pedestrians as a nuisance who should get out of the way of vehicle traffic. They see them as ignorant mortals, nay cattle, to be prodded and controlled against cages and steel barriers. Thus, instead of enforcing the rules on driving behavior, government agencies like the MMDA simply penalize pedestrians even more by establishing cages and barriers that would even pin down and restrict people’s movements, thus endangering people’s lives.

Just try taking a bus at Edsa adjacent to SM in Makati City and see how the cages constructed by the MMDA under Bayani Fernando are a veritable death trap should a stampede occur. This is the only country that uses cattle cages and chicken wires to control pedestrians and traffic flow. We should be ashamed of this utterly fascistic form of urban “management.”

Somehow, this problem may reflect the greater social malaise that afflicts Philippine society. By some technical definition, more than half of the Philippine population lives in “urban areas.” But at heart, the average Filipino is still a hillbilly whose frame of mind does not transcend beyond his immediate family, network of friends and extended relatives.

Unlike countries that underwent an industrial revolution where people had to live by the rules and rigidity of a synchronized second-wave economy, the Pinoy, the rural dweller trapped in the urban jungle, has not learned to live properly in an urbanized setting. Thus he snarls when a pedestrian, a lesser mortal, gets in the way. And sometimes he hurts or kills them—“accidentally.”

Most Asian countries of course also did not experience industrial revolution to engender urbanity in their citizens. But the State came to fore to perform such function. The State, through its powers in traffic management, land-use planning and day-to-day urban management, played a crucial role, something that we sorely lack here in the Philippines.

That is why all sectors of society—especially schools, churches, businesses and civil-society groups—should help in addressing this problem. We need to bring the Filipino drivers’ attitudes and value systems into the 21st century.

We have no choice but to do it, otherwise the daily slaughter of the innocents in the streets will continue.

Wednesday, February 21, 2007

Resolving the legitimacy issue is key to the success of Plan 789

IT is gratifying to see the government trying to rev up the economy so we could achieve a 7-9 percent growth in the country’s gross domestic product (GDP). It’s something worth noting because that means that finally, no less than the President herself has seen the futility of just cruising and muddling through a 5-6 percent growth that we have achieved in the last three years. Such level of growth has been quite decent compared to our performance a decade ago, but it has not been good enough to soak up joblessness in the country. Yes, there are growing opportunities for fresh graduates, especially those who have the skill and spunk to join the growing business process outsourcing industry. But the rate of job creation has been so slow to snatch the ordinary guys off the desperation of the streets. The rate of growth we have is not even enough to provide illusions to all those who want to be janitors in those gleaming towers housing the BPOs. Of course, the 5-6 percent is actually mediocre if we compare ourselves with immediate neighbors China, India, and Vietnam, who are having problems with the opposite—sizzling speed in the growth of their economies.

Thus, the raising of our ambition to achieve 7-9 percent growth in the next few years is a refreshing change. And it’s nice to hear the private sector is behind this idea. But can this really be achieved? We really hope so because it’s the only way we could really address joblessness and, ultimately, poverty.

Certainly, the external environment seems to be favorable enough. Despite all the talk about the cooling of the American economy and its worsening budget and trade deficit problems, the emerging economies (read China, India and the other dragons in East Asia) are expected to grow briskly at more than 7 percent. There is also talk about the possible slowing down in demand for electronics, but industry leaders here continue to expect robust sales due to the increasing use of microchips in cars, trucks, gadgets, and computers. The recent release of Microsoft Vista may even spur more demand for electronics. Barring any major economic and geopolitical shocks (like a sudden surge in global crude prices, conflagration in the Gulf or another terrorist attack at the scale of 911), the world economy may yet be relied upon to help us through that 7-8-9 ambition of ours.

We are happy to note that some domestic ingredients are actually present. Inflation is tapering off, the government’s finances are improving, interest rates are down, the dollar remittances are surging, the cyberservices sector is growing fast. Foreign direct investments numbers are improving quickly, an indication we are slowly regaining business confidence among foreign investors. And most of all, property analysts are saying that a construction boom is about to kick off as the country’s major business centers like Makati and Ortigas are running out of space for the burgeoning BPOs.

There are worrying trends, however. Despite the decent growth rates achieved so far, domestic investments are not rising, as indicated by the weak capital formation figures. Business people are not investing in durable equipment, nor are agribusiness entrepreneurs putting money in breeding stocks and orchard. Imports especially of capital goods are also not rising. Private construction in the last three years has also been flat. What this is saying is that local investors are not really putting a stake in the economy yet.

And why? One could only speculate, but we believe the attitude among business people is probably related to the continuing legitimacy issue of the Arroyo government. Investors are waiting if the coming election could resolve this legitimacy issue. Investors are “rational people”; they are not going to stake their money if they think the continuing question of legitimacy would linger. It’s no use expanding your factory and hiring more workers if you know this issue would distract Malacañang’s occupants into squandering public resources in politically-motivated and therefore economically wasteful expenditures that would ultimately hurt the economy. It’s no use putting money for the future, knowing that Malacañang dwellers are on purely survival mode and are distracted from governing.

The legitimacy issue, of course, could probably be addressed by a clean and honest election this coming May. At least, that’s what we are hoping for. What is of concern, though, is the notion that the ruling powers might not really be committed to such an exercise. Why? One reason is the continuing dream among top leaders of the Executive, and their allies in the House of Representatives, for charter change. According to political analyst Mario Taguiwalo, president of National Institute for Policy Studies, it’s obvious that a clean and honest election would only strengthen the Senate, which would thus resist any move to abolish it through Charter change. That means that cynically, they might just tarnish the image of the Senate by committing massive fraud, thus prompting an exasperated public to think that abolishing the Senate through cha-cha might just be the right thing. This is not to say that the ruling party is right now hatching this malevolent plot. But the strong temptation is there, especially that—based on the Pulse Asia survey—only a few candidates in the Team Unity are winnable. Some of the candidates may think that, should they go down, they might as well bring the house, nay the country, down.

That’s the worst “1-2-3 [double cross] scenario,” of course, and one hopes it won’t happen again, or we might as well kiss “7-8-9” goodbye. There’s so much at stake here, the least of which is the budding recovery achieved in the last three years. All well-meaning citizens should thus help see to it that we have such a clean and honest election for the sake of the country.

Crossing our fingers, what we would like to see—as enunciated well by Mr Taguiwalo at Wednesday’s Ateneo Eagle Watch briefing—is a mid-term electoral process that would plant the seeds for the election of a viable, credible and legitimate administration in 2010. That way, we could achieve stability and gain the political capital that the government could mobilize for the right economic and social reforms. The 7-8-9 dream seems a long shot, but who knows, given such a credible election providing leaven for genuine reform and boosting economic activity, it might be doable yet.

Monday, February 19, 2007

Is PPA a fixer for port monopolists?

IS the Philippine Ports Authority (PPA) an agent of some monopolists or what? Whose interest does it represent? These questions have been raised because it seems that it’s acting like a fixer for those who are out to monopolize North Harbor should the government pursue its privatization.

The government has lately been mulling over the privatization of the strategic port. It’s the right thing to do at this time. Governments in this country have always tried to bite more than they could chew, and intervened in economic spheres where they should not. That’s mainly why we ended up with a corrupt, bloated, and sluggish bureaucracy that can’t do anything other than hurt the country’s prospects for growth and development.

But if we have to privatize North Harbor, why should we turn it over to private monopoly? That would be no different from turning over the control of a strategic economic infrastructure from the hands of a publicly paid rent-seeking posse to a group of private capitalist raiders out to fleece the national interest.

We know for a fact that the PPA is owned by the government and therefore we expect it to represent the common good. The government has been saying it’s for deregulation, privatization, and greater competition to promote greater efficiency in the economy. One therefore logically expects the PPA to toe this policy line. But what the PPA has been saying vis-à-vis this issue of North Harbor privatization clearly goes against government policy.
PPA is saying that it prefers a single operator for the North Harbor to “make it attractive to the private sector,” as well as “to prevent cut-throat competition.”

Certainly, any private sector salivates at the prospect of solely controlling North Harbor. Without any competition, any private sector operator could raise prices on a whim without modernizing the port’s facilities. Without a benchmark by which the operator’s performance could be measured against, how do we know if public interest is being screwed or not? But why is the PPA so afraid of “cut-throat competition?” Is it trying to protect certain vested interests in the port business?

Certainly, business people hate and fear competition. They want market dominance all the time. But we all know that competition benefits society as a whole and therefore it is good to ensure competition among the players all the time.

It’s the “cut-throat” competition among telecommunication companies that brought millions of landlines to the provinces and cellular phones to just about anybody else. It’s this cut-throat competition that gave us Internet connectivity. And it’s cut-throat competition among retailers that is driving down inflation rates, thus enabling us to stretch our purchasing power.

A few years ago, we were happy to have dial-up Internet even though it took an eternity to get connected to the Web. Now, a growing number of people are having broadband and, thanks to “cut-throat competition,” high-speed Internet will soon be ubiquitous like TV, thus extending the benefit of the Information Revolution to the broader segment of the population. And most of all, it’s cut-throat competition that brought us all the economic and telecommunications infrastructure that, in turn, also attracted the $3-billion cyberservices industry and giving jobs and hopes to more than 250,000 young people.

If we can do that in telecommunications as well as in other sectors of the Philippine economy, why can’t we do it in port operations and shipping?

Yes, cut-throat competition brings wealth and progress. We are therefore better off having a competitive port operations business in the country. We have more than 7,000 islands in the country and many of them are still suffering in the limbo of disconnectedness, poverty and unrest because for too long the government has tolerated a one-port-one-operator policy. For so long, most of our ports have been operated by monopolies, the reason why farmers and fishers in the far reaches of the archipelago couldn’t sell their produce at competitive prices. Compared with our neighbors, our cost of production in the farms and agribusiness plantations is comparable with our neighbors. Yet we couldn’t compete with them because of higher shipping and transport costs. And shipping and transport costs are high primarily because producers don’t have much choice.

Take the case of Mindanao. It is rich in natural resources, its lands are fertile and productive, and its seas are awash with the bounties of the sea. And yet, a significant part of its population is wretchedly poor and some of its nooks and crannies are havens for criminals and terrorists. Why? It’s because development and progress couldn’t get to these isolated places. Places like Bukidnon, the Cotabato provinces and Wa-o in Lanao del Sur produce the best corn in the land needed by the fast-growing livestock and poultry sector. And yet farmers in these places couldn’t sell their corn at profitable prices because the shipping cost is high. The joke until this day is that it’s cheaper to import corn from Argentina than get it from Mindanao.

These days we always wonder why “development” has always been confined to Metro Manila, Calabarzon, and to the major cities of Cebu and Davao. We always thought that we need more strategic infrastructure facilities to link these economic centers to the hinterlands.

This is true but it’s only half the story. The other side of the coin is the one-port, one-operator rule being encouraged by the PPA. If we want to ensure that growth spreads to the countryside we better scrap this policy. If we have to privatize the North Harbor, we better make sure that what we are going to put in place is a competitive environment for operators, as well as for those who are using them.It’s nice to know that the Philippine Chamber of Commerce and Industry (PCCI) is fighting PPA on this issue. But they need the support of the larger society in this struggle. What’s at stake here is no less than the global competitiveness of the entire Philippine economy.

Sunday, February 18, 2007

Philippine economy on the mend

Asia Times Online article
By David L Llorito
Posted Oct 26, 2006

MANILA - Philippine President Gloria Macapagal-Arroyo may be suffering politically, with allegations of vote-rigging and state-sponsored human-rights abuses darkly hanging over her embattled administration. But the economist-turned-president is simultaneously riding a rising tide of good economic news, which is significantly shoring up her government's staying power.

In the first seven months of this year, net foreign direct investments registered with the Bangko Sentral ng Pilipinas (BSP), the Philippine central bank, reached US$1.15 billion, a 60% jump over the same period last year. Led by US, Japanese, German and British investors, foreign funds are pouring into manufacturing, led by outlays into paper, chemicals, electronics and steel, as well as services, including business process outsourcing, tourism, engineering and construction.

Healthy capital inflows are boosting the local bourse. Francis Ed Lim, president and chief executive officer of the Philippine Stock Exchange, notes that the stock market has recently reached highs not seen since the heady days preceding the 1997-98 Asian financial crisis. "I am sure fiscal reforms in the government have made us an attractive investment alternative," Lim told Asia Times Online. He contends that listed companies are expected to turn in bumper profits this year, due largely to the country's improving economic fundamentals.

In the past two-and-a-half years, as measured by gross domestic product (GDP) figures, real economic growth has averaged between 5% and 6% and state economic planners are confident the trend will continue this year and over the medium term. Foreign remittances, which are on pace to top $12 billion this year, still contribute disproportionately to domestic consumption and total GDP. However, economists contend that recent economic growth has been more broad-based, with agriculture and industry contributing more in percentage terms than in the past.

That performance has set Arroyo's spin doctors in upbeat motion. "The economy is on an extended bull run and we are confident that the people can keep the pace going until we finally achieve economic takeoff," she recently said to a meeting of local and foreign business people, where she attempted to drum up $3 billion of new investments.

Romulo Neri, director general of the National Economic and Development Authority (NEDA), says that apart from the $30 billion export-oriented electronics and cyber-services industry, new growth drivers such as agribusiness, marine products, mining and tourism, among others, will boost average expansion to around 7% by 2010, potentially putting the Philippines on par with fast-growing China, India and Vietnam.

More soberly, multilateral agencies credit the government's reform policies for the improved performance, particularly those measures that Arroyo implemented soon after the controversial 2004 presidential election. The International Monetary Fund (IMF) recently noted that until recently the Philippines had suffered from "policy drift", which resulted in mushrooming public debt and unwieldy external financing obligations. That, the IMF said, had left the economy vulnerable to both internal and external shocks.

Since 2004, Arroyo has undertaken significant belt-tightening reforms, including boosting the value added tax rate from 10% to 12%, the corporate tax rate and excise levies, which combined have substantially narrowed the fiscal deficit and stabilized national finances. Non-financial public sector deficit was slashed from 5.3% of GDP in 2003 to 2% of GDP by the end of 2005. Those reforms have importantly freed up funds for priority spending, including badly needed outlays for new infrastructure.

They've also helped to rein in galloping inflation, which has dipped from around 7.5% last year to currently below 6%. Those improving fundamentals have made the peso one of Asia's best-performing currencies this year, up more than 10% against the greenback, year-on-year as of mid-October. Some local and foreign analysts predict that the country is due for a sovereign risk upgrade, which the country hasn't seen for over nine years.

Good news, bad newsAt the same time, independent economic analysts say there is a drastic need for further reforms, and some fear that the recent spate of good economic news could lead to complacency. "There are clear positive developments in the economy. However, the picture continues to be a mix of good news and bad news, marked with a number of puzzling contributions," said Cielito Habito, economist from the Ateneo Center for Economic Research and Development, and former NED director general during the presidency of Fidel Ramos from 1992-98.

"Of the three key variables that matter most - prices, jobs and incomes - prices and incomes are showing some improvements, but the already bad jobs situation has gotten even worse," said Habito. He notes that despite strong economic expansion, new employment grew by only 2.3%, lagging the annual 2.6% expansion of the labor force, which has resulted in higher unemployment, now at around 2.9 million potential workers.

Habito also notes that despite the improving economic fundamentals, consumer and business confidence are still in the doldrums, due to the ongoing political crisis, rising unemployment and, in places, ineffective government stimulus. According to the BSP, consumer confidence in the third quarter was a negative 37%, worryingly unchanged from the second quarter. Rising global crude prices and increasing local labor costs, meanwhile, have hit business confidence, which declined from 31.6% in the second quarter to 21.7% in the third quarter of this year.

Government officials contend that recent reforms will take time to trickle down. "I think it's a hangover from last year's political crisis," said Dennis Arroyo, executive director of NEDA's national policy and planning, who is not related to President Arroyo. Election rigging allegations against Arroyo have recently led to mass street demonstrations, the resignation of 10 cabinet members and widespread rumors of a military takeover, which motivated the embattled president to declare a state of emergency in February.

"Remember that investment decisions lag by at least six months. Those [political events] are still impacting us. So there's an investment lag," said NEDA's Arroyo, who contends that once government spending kicks in for the third and fourth quarters, the private sector would be encouraged to accelerate their investment decisions. "We are well on our way to a 5.8% to 6.6% growth in 2007 and about 7.3% by 2010," said the official.

Other independent economists, however, are less optimistic. Joachim von Amsberg, the World Bank's country director in the Philippines, contends that an unresolved "paradox" is adversely affecting the economy's performance.

The Philippines, he said, is located in a "great neighborhood" of booming East Asian economies, with educated and English-speaking people, abundant natural resources and some strong and dynamic sectors like electronics and cyber-services. "Yet its growth rate has been below potential," von Amsberg said, noting that until now growth has been driven more by foreign remittances than domestic investment or rapidly expanding exports.

"Output per worker in the Philippines is up 50% between 1961 and 2003 as compared to 450% in other East Asian economies. It's not due to differences in educational attainment or human capital, but it's due to lower physical capital accumulation and productivity growth," he said. He contends that Arroyo needs to pursue a clearer, deeper reform agenda, which aims to ensure the credibility of contracts, open and competitive bidding for infrastructure projects, deregulate key economic industries and liberalize the financial system.

"Continuous attention should be given to reducing transactions costs through eliminating red tape, simplifying the adjudication process, and strengthening the integrity and capability of key regulatory institutions," he said. Clearly there is still much work to be done before the Philippines enters the ranks of Asia's powerhouse economies. Yet, slowly but surely, barring another major political hic-cup, the economic picture is improving.

(Copyright 2006 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing .)

Wednesday, February 14, 2007

Philippine cement industry: say it ain't so, Peter!

WE support Trade and Industry Secretary Peter Favila’s efforts to get to the bottom of the supposed spikes in cement prices. We are entering the summer months, the start of the construction season, and we can’t afford to unduly penalize the construction sector that is just starting to recover since the Asian financial crisis in 1997.

If there’s one sector that can really make a difference in the lives of many ordinary people in the quickest time possible, it’s the construction industry. It’s a labor-intensive industry that soaks up lots of jobless brawn off the streets as soon as people decide to build buildings, industrial plants and homes.

Taking off from Favila’s lament, it’s indeed curious that a 40-kg bag of cement now reportedly costs P200, when sales are supposedly low. That seems to violate the basic concept of the law of supply and demand. He threatened to import cement should the spikes continue, if only to protect consumers. It’s a sensible policy we say, given that there is now a pressing need to bring down to the masses the benefits of modest growth that we have achieved in recent years.

But why should the government resort to such action? We have checked with the Tariff Commission and we have found out that the government has removed the special safeguards measures (SSM) that former trade secretary Mar Roxas had applied on cement imports long ago.

In 2001, Roxas caved in to the local cement lobby that was then complaining about “injuries” caused by rising cement imports and was forced to impose SSM, thus significantly raising cement prices in the local market. In response, the Tariff Commission conducted an investigation and found out that Roxas’s decision was totally baseless, as local manufacturers maintained an 80-percent share of the domestic market. The report also stated that there was no injury to speak of, nor was there any worker losing his job because of the rise of cement imports. The industry, in fact, improved its productivity as a result of the rising foreign competition.

Thus, right now cement enjoys a low tariff of 5 percent. Given that anybody could actually import the stuff now without any other trade barrier, it’s probably unnecessary for the government to threaten local cement producers with imports.

Is Favila grandstanding? We are asking this question because, given the low tariff rates for cement (5 percent), it’s possible that the recent rise in domestic prices is the result of market forces. In the last four quarters, the gross value added of the construction sector has been growing within the range of 3.5 percent to 5.2 percent.

Lately, analysts have been saying that the property sector is due for a boom in response to certain structural factors like rising remittances, rising investment inflows, and the continuing demand for office spaces by the business-process outsourcing industry. Certainly, under a competitive environment, an increase in local prices could immediately trigger either rising production or imports, as suppliers try their best to capture the windfall gains. In just a short while, prices will stabilize again to the benefit of consumers.

So why worry? Why the threat of flooding the local market with cement imports?

Unless Favila knows something that we don’t.

The only way local cement prices could rise above what the market would allow is when producers, as well as importers, collude to take advantage of the coming construction boom. Certainly, a lot of cement-industry stakeholders are salivating at the prospect of making easy money from the projected 20-percent property growth in 2007. But is collusion possible considering that there are many producers and suppliers?

Consider this report from the Tariff Commission: “After 1997, faced with a shrinking market and financial problems, the local companies were ripe for the picking. They were looking for investors or partners as their ‘knights in shining armor’ to save them from their financial woes. The attractiveness of the local cement companies was something that the international players could not ignore.

“Given the cement companies’ dire straits and given the fact that the peso had depreciated considerably vis-à-vis the dollar, given that new plants were now being put up or going on stream, given the foreign cement companies’ experience in other countries of achieving market dominance, and given the openness of the local owners to foreign investments, the time had come for the global companies to enter the Philippine market in a big way. The local companies could be had at bargain, if not basement, prices. Between 1997 and 1999, Blue Circle, Cemex, Holcim and Lafarge took over 12 companies which now control 89 percent of total industry capacity.”

There you go! What we have here is a concentrated industry where a few companies control the bulk of the local market. There are importers of course, but they actually just account for 13 percent of the domestic market. And in the context of the Philippine political economy where every big shot is a relative, kumpare or a fraternity brother of the niece or the balae of the other, collusion might be one issue here.

We actually hope there is no such collusion; nor do we assume such malevolence. But what we stress here is that indeed Peter Favila, a guardian of public interest when it comes to trade and consumer affairs, has a serious job to do here. And do he must in the most transparent of ways. If he sees collusion somewhere down the road of inquiry, he must let the public know.

To quote Ralph Waldo Emerson (1803-1882): “Each man takes care that his neighbor shall not cheat him. But a day comes when he begins to care that he does not cheat his neighbor. Then all goes well—he has changed his market-cart into a chariot of the sun.”

Yes, we need the powers of the state to help make sure some guys out there who do business would indeed change their market carts into chariots of the sun.

Thomas Barnett's Pentagon's New Map

For all those who want to understand globalization in the time of Terror, this book by Thomas Barnett is an excellent reference. His use of the first person perspective and conversational tone makes the discussions of global affairs easy to digest. But this book is not a convenient read especially for those who see America as playing a negative role in international politics. Americans may also find his recommendations discomforting as his views of the world leaps out of the usual boxes set by the commentariat from both conservative and the liberals. But I must admit that I find his “core-gap” thesis pretty attractive as a way to analyze global events.

The book argues that the world is in a mess because globalization has largely benefited the Core (composed of countries like the US, Europe) and the new core (essentially China, India, Brazil, and the newly industrialized countries) with the rest of the world especially the gap (Third World hell holes where terrorists hide and spawn) isolated and disconnected, their faces pressed against the glass. The task of the Core (necessarily led by the US and Europe) should extend connectedness to the rest of the world by balancing “four major global transactions.”

First is the movement of people from the Gap through the Core to address the greying population problem and its attendant issues. Second transaction is the movement of energy (oil, gas) to the Core and new Core. Third transaction is the movement of capital (investments, foreign trade) from the Core to the new core and the gap. China and the Asia Pacific region is certainly benefiting from this trend. And the last is the export of “security” from the Core to the gap.

This one is the most contentious. One the one hand, US presence in East and Southeast Asia has prevented a regional arms race, thus enabling countries like Korea, Singapore, Thailand, Malaysia, Japan, and the Philippines to focus their resources on economic development. Humanitarian operations to help countries affected by natural disasters are also seen as positive. On the other, the continuing bloodletting in Iraq seems to point out towards the dangers of exporting security especially in areas where American presence is not welcome.

Nevertheless, his arguments for ending disconnectedness and isolation by Gap countries are powerful. And I wonder why its recommendations don’t seem to reflect American economic and trade policy especially during the time when American leadership is needed to make the Doha Round of Trade negotiations successful. Maybe it’s because the conservatives and the Republicans are simply stuck in the Iraqi quagmire to think of other more important “global transactions.” That’s the tragedy. But that doesn’t detract us from the fact that this book is a nice one to read.

Tuesday, February 13, 2007

Signs of the times in the Philippines

Am I a lousy supervisor or what? Last New Year’s eve, I lost Debbie to a call center company where she assumed a managerial post. Yesterday, on Valentines’ eve, Louise handed her resignation letter, telling me she is joining a market research firm next month. And the reasons? Both of them got 50-100 percent higher pay.

“Are you sure that’s [higher pay] really the reason why you are leaving?, I asked.

“Yes, sir,” she said. We have been friends for long and I see no reason why she should lie to me.

“That’s nice,” I said. “I’m happy for you. I don’t see why I should get in the way of people’s progress and happiness. Congratulations!”

“Thank you, sir!”

It’s unfortunate for me because her resignation would further disrupt some of our research projects. Overall, however, I’m happy because it means that job opportunities out there are increasing and young people like her are getting better options. In the past, some staff members resigned because they either hated me or got sick and tired of my face. They would rather go jobless or get lower pay somewhere just to stop seeing my shadow. Now, they resign because they have better offers. Isn’t that wonderful?

Signs of the times really and a nice one at that. In the last three to five years, the Philippine economy has been growing 5-6 percent and somehow this consistent albeit modest growth are slowly transforming into tangible gains like rising job opportunities. The growth of cyberservices, electronics, finance, telecommunications, and real estate as well as the continuing inflow of dollars from overseas workers (12-14 billion US dollars a year) are apparently generating lots of economic activities. It’s not yet The Promised Land, but things are moving forward.

Meantime, I need to get a replacement.

Monday, February 12, 2007

Could the Philippines ever have an "issue-oriented" politics?

Count a few more days and soon we will see our communities being swamped by strangers who will shake our hands, kiss our babies, and promise to ease our pains and take away our sorrows.

We laugh at their antics, sneer at their pretensions, and get entertained by the platoons of clowns and scantily-clad girls they foist on the stage to get our attention. But in the end, their kind are going to have the last laugh for they will determine whether or not our garbage are collected, our towns and cities enjoy peace and stability, and our country grow and prosper. It’s really important therefore that we choose the right candidate to elect. No, we are not talking here about ideology or whether or not the guy hates globalization and loves an “ism”; we are talking about integrity, honesty and competence.

Why integrity and competence and not the issues? It’s because “issue-oriented politics” in the Philippine seem to have gone passé. But still we long for the “politics of principles and ideologies” and are disgusted by the current crop of candidates who don’t mouth the key words we always long to hear. These include the old left-leaning trigger words like “nationalism,” “cause-oriented,” “pro-people,” “pro-environment,” “against foreign debt,” “nationalist industrialization,” “land reform,” “against globalization,” to name a few.

But we no longer hear these words and we wonder if politics has completely gone down to the level of That’s Eentertainment or Starstruck. Maybe it has. But real reason could be that the kind of political process that those key words represented was long gone. Globalization has completely changed the references of political and social discourse thus making the old framework about what is Left and what is Right, from which the great debates have been traditionally anchored here in the Philippines, totally irrelevant.

In the formulation of yore, denizens of the left shade of the political spectrum long for change and embrace the flow of history in contrast with those of the Right who cling to the status quo. Not anymore. These days, for instance, the Left instinctively oppose market-oriented legislations that could undo local monopolies and oligopolies and therefore benefit consumers and the broader segment of the masses. Confused about their loyalties, leftists conveniently link arms with military adventurists and Marcos remnants for whatever issue they find convenient to oppose. How easy it is for human right activists these days to form “tactical alliances” with their former torturers, thus blurring the imagined political fault lines of the recent past.

It’s the collapse of Berlin Wall that ushered in the faster pace of globalization that brought all this confusion and change. Class struggle within the country’s borders, the imagined schism between the owners of capital and the possessor of the brawn, has lost its immediacy as both workers and capitalists suddenly found themselves struggling for survival against foreign competition. Suddenly, “global competitiveness” became the buzzword requiring strategic alliances and cooperation between the state, politicians, the business community, the working class, and civil society. It was the “end of history,” proclaimed political scientist Francis Fukuyama, the end grand theorizing; the business is now is about the nitty-gritty of fostering greater liberal democracy, growth and development the boring process and path for which hardly brings up contentious or bitter debates.

That explains the reason why we could no longer hear politicians and political players argue about grand ideas and competing models of development. With globalization in full throttle, the current crop of politicians now generally assume the future of the country lies in connectivity, and the only debate left is to what extent and how fast should we hitch on that global dynamics. But that these differences by themselves wouldn’t make interesting election discussions as politicians would rather go for mass marketing techniques characterized by hype and spectacle to get the most number of votes.

To some extent, the “success” of the post-Marcos reformers explains the characteristics how we do politics today. Many of the leaders that brought the Edsa Revolution became functionaries of the state even until the present, bringing with them their language of activism and protest. Terms like “sustainable development,” “bottom-up approach,” and “people-centered approach” to development became mainstream terminologies that everybody subscribe to.

The worst aspect of the post-Edsa reforms of course was the discrediting of the traditional party system through a systematic campaign against the “traditional politician” or trapo. That one really undermined the party system that in a functioning democracy should be the ideal avenue for political socialization and mobilization. The queen of the Edsa Revolution herself, Corazon Aquino, thrashed the credibility of the party system by dumping the archetypal traditional politician in Ramon Mitra in favor of Fidel Ramos, a military hero who by that time looked like “non-traditional politician,” despite an earlier gentlemen’s agreement that each aspirant would be abide by the results of the primaries within the Laban ng Demokratikong Pilipino.

Ramos then looked like a non-trapo simply because the post-Edsa reformers never really succeeded in defining what the alternative to trapo was. From the popular imagination, traditional politicians are those who have always been there since time immemorial and that definition damaged even the likes of Jovito Salonga, Teofisto Guingona, and Aquilino Pimentel. With the credibility of the party system and traditional politics in tatters, the stage was set for the next crop of “non-trapo” leaders like the actor Joseph Estrada and Gloria Arroyo whose rose to power in the most nontraditional means. Cory’s action in anointing Ramos then simply confirmed that parties has always been flags of convenience that could be easily discarded once the direction of political winds changed.

It was plain naïveté for post-Marcos reformers to concoct the term “non-traditional politicians because in reality all politics are traditional. Politics in its barest essential—no matter what that politician’s motive is—is all about the capture and maintenance of political power. A reformer has to capture power first even he or she could ever dream of implementing well meaning social policies. The thrust after the Edsa Revolution therefore would have been reengineering and strengthening the party system the way the Americans and the Europeans did and not denigrating it without offering any alternative. Revitalizing the party system of course would take time but the Filipino nation and its social institutions could actually start the process by reemphazing the values that made political parties relevant and effective: competence, honesty, and integrity.

Sunday, February 11, 2007

People power through microcredit

A few weeks ago, former president Corazon Aquino launched what could probably be the largest single private sector microcredit program in the country’s history. Called PinoyME or Filipino Micro-Enterprise, the program aims to mobilize P5 billion pesos to assist 5 million poor entrepreneurs in depressed communities all over the country. Philippine society should support this program for three major reasons.

First, the program represents a major shift in thinking among the country’s economic elites about the potentials of the poor and marginalized sectors of society as agents of development and progress. For long, managers of banks and financing organizations looked down on the poor as “unbankable.”

The poor usually have nothing to offer as collateral. They don’t have stable jobs, nor do they have good resume. In developing countries like the Philippines, they often derive irregular incomes from economic activities (e.g. farming, peddling) that are considered high-risk and seasonal. They have no credit history that the banks could verify. And yet, Cory and her group are embarking on a program that is certainly risky and yet has the potential of transforming the country’s economy.

Of course, since Mohammed Yunus got a Nobel Prize for the success of the Grameen Bank that he founded in Bangladesh, bankers and financiers have started to realize that there is business in banking with the poor, especially women.

In fact, bankers these days have started to change their phraseology about microfinance: it’s not the poor are “unbankable”; they are simply “pre-bankable” and microcredit—given factors like adequate social preparation like training in entrepreneurship, value formation, and effective community organizing—could be the best way of bringing them into the mainstream of the country’s financial system. Once they are able to build “track record,” the poor are likely to be as reliable a partner of the banks as those who do their business from their posh offices along Ayala Avenue in Makati.

Second, micro-credit programs such as PinoyME are probably the best way to ensure gender equality in the Philippines. Based on the experiences of Yunus’ Grameen Bank as well as other schemes worldwide, microcredit programs are oftentimes focused on women. Why women? It’s because, based on actual experiences, loans extended to women and their projects are likely to benefit the entire family more than when these are extended to men.

And third, economic and social programs such as this one could help ensure broad-based growth in the Philippines. If it succeeds, it has the potential of uplifting the lives of a least 5 million poor families all over the country. Some of them may eventually grow into small and medium enterprises, create more jobs in their localities, and transform a lot more lives in the process. In the last twelve quarters, the Philippine economy has been growing at decent growth rates (5-6 percent gross domestic product growth rates), driven mostly by robust performances of electronics, outsourcing, and consumption-oriented economic activities buttressed by the dollar remittances of overseas Filipino workers. Initiative such as PinoyME therefore is a good way of complimenting these sectors, boosting the economy even more. In fact, if we want to broaden the ranks of the middle class, microcredit is probably one of the best ways to do it.

The expansion of the ranks of the middle class is important because of its role in strengthening the country’s democratic institutions. Former Negro Occidental governor Daniel Lacson sums it well, thus: “By making microfinance more accessible, PinoyME aims to unlock the potential of individual Filipinos, particularly those who have been marginalized and stripped of their dignity by sheer poverty. Over the medium to long term, this will also pave the way for better governance as a critical mass of citizens is empowered to make mature political choices and demands, as well as to aspire to become a new breed of leaders. Our vision is to help create a broad middle class, which is the foundation for an equitable economy and a strong democracy.”

Thursday, February 08, 2007

Globalization and the Philippines: "The walls are within us"

Two weeks ago, Dana (a journalist friend from a Japanese wire agency) and me were discussing “globalization” in reaction to Thomas Friedman’s book The Lexus and the Olive Tree. Last Monday, I was surprised to get an email from her detailing some of her recent comments. The points she raised are interesting.

Dear Dave:

1. You said you dream of an information age where information would be readily available to people, so people can improve their lives by making informed decisions. Friedman talks about a world where information is available at the click of a mouse, but my question is, can this be done?

2. Technology has made information available to a lot of people, and it has also kept out a lot of people. But if you think of it, poverty and lack of knowledge are the not only walls we have built. We keep information to ourselves because it is power, and we trade it as we do money.

3. Sometimes, people are afraid to say what they know because they fear persecution, from those who would lose their power if the information were to be publicly known. Sometimes they feel that no one would listen anyway. In our day to day lives, do we readily share information with anyone who would like to know? Or do we check first if the person is worth our trust? If we think of information as dangerous, and believe that even the smallest detail can be twisted and used against us, will we ever come to a time when information will be freely shared?

4. We are the ones who make the technology, we are the ones who build the walls. And we are the ones who choose not to share. For as long as we continue to distrust each other, for as long as we build walls to keep strangers out, we will not have an information age, regardless of the technology. For always there will be some who will be left out, by the walls that have been built.

5. Ursula leGuin, in her novel "Dispossessed," talks of an ideal society, one where they tried not to build walls. There were no laws, no properties, no incentives save the satisfaction of doing the work that one liked and the respect of one's neighbors. There was no religion, no taboos. Sex was not forbidden, and people had no idea of heaven or hell. Yet still they built walls: in their hearts and in their minds, they clung to the ideas they knew, to the comfort of customs and traditions, and tried to keep strangers out. The walls are inside us. We will not be ready to share until we see each other as brothers. So the information age you dream about is not about technology, it is about sharing. And it will come about when we are ready, not when the technology is.

Comments? Reactions? Violence

It seems that these are existential questions whose answers hang in the realm subjective thoughts and feelings. But let me try in my own way.

1. It could be done, why not? But there are certain conditions like the ubiquity of broadband and the greater affordability of these technologies. Policy-wise, we need to open up telecommunications and media industries to greater competition. We need to allow 100 percent media ownership in media. We need to dismantle the oligopoly in these sectors.

2. Poverty and lack of knowledge is somehow one and the same. Many people are poor because they lack access to information and knowledge. When you are information poor, you don’t have a choice. And choice is the essence of development, right? Right. And where do you start? With education, with reforms in telecommunications and media ownership. Some information are actually “free”; notice the proliferation of open source software and user generated content. But there’s really no worry about the trading of information and knowledge. If you could trade and make money from these things, there are more incentives for you to acquire them, process, and sell them as value added contribution to society. Going to school and working as journalist, analyst, or engineer later on are examples of how we trade knowledge and ideas in return for something that we value, be it money, prestige, and power.

3. Information and knowledge per se are always neutral. If someone twists it for certain ends, the solution is only greater openness. That’s how you expose the malicious, the fake, and the plain dimwits. That’s the rationale for encouraging greater competition in the economy. When there are competing sources of information, and greater freedom of the press and information, there are greater chances that those who are manipulating the truth are exposed and pay for it.

4. For me the key word there is choice, as always. People should have the right to give and withhold information, subject to certain legal limitations. But that’s not really a problem. What is crucial is the question whether or not the social dispensation allow such freedoms, whether or not The System allows or bans the technologies that ensures people have access to information that they seek. But mind you, people—as proven by the growth of blogging, Youtube, and social networking like Multiply—would really like to share. It appears to be part of human nature. The Internet it appears is breaking lots of barriers, including distrust.

5. This year’s Time of the Year is “You.” Or “we” who are there transforming information and knowledge through open source, user provided content, etcetera. Isn’t that enough proof that LeGuin is wrong? There would always be people who would try to build walls but these barriers are going to be shattered by the innate desire to share, to reach out, and connect. Yes, the information revolution is really all about connectivity.

I really hope I answered her questions.

Wednesday, February 07, 2007

The New Economy is here in the Philippines!

“Subcontracting as many noncore activities as possible is a central element of the new economy. We live in an age of outsourcing. Firms seem to be subcontracting an ever-expanding set of activities, ranging from product design to assembly, from research and development to marketing, distribution and after-sales service. Some firms have gone so far as to become ‘virtual’ manufacturers, owning designs for many products but making almost nothing themselves."

Financial Times, 31 July 2001, as quoted in Sandor Boyson (2006), “Eras of Enterprise Globalization: From Vertical Integration to Virtualization and Beyond.”

ANALYSTS say the inclusion of the SPI Technologies into the Global Services 100 “signals the arrival of an entirely new set of nations providing software and IT services” in the globally expanding outsourcing industry. At the surface, that only one locally owned outsourcing company made it to the list despite the double-digit growth of the cyberservices industry in the last five years seems to make the story less impressive.

What that story doesn’t say is that many of those on the list—24/7 Customer, Accenture, Affiliated Computer Services, Capgemini, Client Logic, Convergis, Headstrong, IBM, NCO, to name a few—are actually doing business here. That should indicate the Philippines is actually getting to be a major player in the business. In fact, NeoIT, a consulting outfit specializing in business process outsourcing, observes in its latest report that the Philippines, together with Russia, is fast catching up with India in the business, particularly in areas like voice services, finance accounting and information technology. It’s something that the country should nurture and be proud of and, certainly, bringing back the prominence of English in the schools, media, offices, corporate world and the social sectors is among the best ways to ensure the cyberservices sector’s continuing growth.

It’s unfortunate, however, that many decision makers and gatekeepers in the country’s politics, economy, educational system, media, labor unions, and other social institutions don’t seem to have any clear appreciation of this exciting industry yet. Just about a year ago, leaders of some left-leaning unions denounced call center work as “dead-end jobs” and “air-conditioned sweat shops.” Others seem to think that BPO jobs are likely just a fad, like the ubiquitous gulaman and sago stalls that used to dot the street corners. More so because—as the Americans are losing jobs to Indians, Chinese and Filipinos—their legislators are likely to craft laws that would prevent the offshoring of some economic activities to places like ours. The cyberservices industry has been growing close to 50 percent per year in the last five years and it seems to be too good to be true for others. These are the reasons perhaps why important initiatives like the restoration of English as the medium of instruction and even the privately initiated programs like the “English is Cool” campaign don’t seem to get traction. Try watching primetime TV and all one can see are inane melodramas featuring lousy actors spewing out horrible Tagalog lines. Yes, we’ve mangled language so badly that on top of ungrammatical English we have fabricated Tagalog words like “ka-pulisan” and “ka-obispohan” (to refer to the police force and the bishops’ bloc).

What many of us have failed to appreciate is that outsourcing is the logical outcome of the on-going enterprise globalization and therefore we haven’t seen the best of it yet. It’s a part of the natural historical progression kicked off by the continuing breakthroughs in logistics and information technology that we can only afford to ignore at our peril.

Right up to the ’80s, companies resorted to “vertical integration” to achieve economies of scale and capture markets. Car companies like Ford, for instance, owned rubber plantations in the Third World; owned railways, testing laboratories, sawmills, schools, hospitals, airplane hangars, warehouses, radio rooms, and even cemeteries for employees to ensure the continued flow of materials. To bring the goods to the market, they have intermodal transport systems (lorries, locomotives, and ships and ports) that operated seamlessly on a global scale.

By the late ’80s, most of the companies that employed vertical integration couldn’t cope with the onslaught of Japanese companies like Toyota that were employing just-in-time and network-oriented business structures. As the Information Revolution raged and the real-time supply chain management systems matured since the mid-90s, more and more companies realized they could actually make greater profits by outsourcing their “noncore” activities to other firms in India, China and the Philippines that could do these better, faster, at cheaper rates. That’s how the country’s outsourcing industry came to be and many are surprised by its rapid growth. We started to feel their presence only in the last five years and yet it’s now a US$3-billion-a-year service export industry.

There is also this old notion that equates wealth and progress with farms and nature being plowed to produce surplus, of factories mass-producing tangible goods for sale to all corners of the globe. The services sector is considered “intangible” and therefore was not seen as a possible driver of economic growth and progress. But India has proven that with its U$23- billion annual revenue in BPO exports, cyberservices could actually be a major source of growth. In fact analysts say it’s the major reason for its rise as a regional economic power in Asia.Without neglecting its farms and factories, the Philippines could do no less. India and China have been so successful in this business for their own good, such that many global players are looking at the Philippines as an alternative site for offshoring to reduce risk. Philippine decision makers should therefore take advantage of this trend and develop strategies to maximize the gains. And certainly, the industry, the government and the academic institutions should really sit down together to work this strategy out. This is a rare opportunity that we simply cannot afford to pass.

Monday, February 05, 2007

"Disconnectedness defines danger"

“Eradicating disconnectedness is the defining security task of our age, as well as a supreme moral cause in the cases of those who suffer it against their will. Just as important, however, by expanding the connectivity of globalization, we increase peace and prosperity planet-wide.”—Thomas Barnett, political and military strategist and author of Pentagon’s New Map: War and Peace in the Twenty First Century

THE Civil Aeronautics Board (CAB) has just announced it is exploring “improved air agreements” with several countries to boost economic growth. Among the countries being considered are South Korea, Canada, Oman, Libya, Russia, Cambodia and Palau. This is a great idea that we should pursue to the utmost. In fact, we should have wide-ranging initiatives that should include most, if not all, our trading partners in the Asia Pacific Region. Why? The reason is summed up in a word: “connectivity.”

According to political scientist Thomas Barnett, the information revolution has brought enormous changes on the emerging financial, technological and logistical architecture of the global economy, the least of which is the increased movement of money, goods, services and ideas.

Increasingly, countries that took pains to understand this phenomenon and took advantage of it are flourishing through rising flows of foreign direct investments, innovative ideas and the mobility of talents. We could count in China, India, Singapore, South Korea, Vietnam, Malaysia and many other fast-growing countries in the Asia-Pacific region as excellent examples.

The Philippines has actually started to benefit from the rising connectivity through labor migration, the inflows of foreign direct investments in electronics, and business process outsourcing. These forces alone have globalized the Philippines to the extent that it has partially decoupled the dynamics of the Philippine economy from the country’s rambunctious politics. More than a decade ago, questions on a presidency’s legitimacy and rumors about military adventurism were enough to cause a crashing bust after a short period of boom and relative calm.

Not anymore. These days, even leaders of business and strategic sectors can make a political statement or comment on issues of governance, without worrying that the seriousness of the subject could hurt the markets. Or that political statements can distract people from productive work.

Apparently there is much more to do these days other than becoming—if one is not that astute—cannon fodder for certain political entrepreneurs whose objectives are not necessarily congruent with the national interest.

Still, we have to do much more if only to bring the benefits of connectivity to the broader segment of society. These days, those who are making a killing from rising connectivity are the urban-based elites and the middle class while the underclass remain at the margins, their wrinkled and expectant faces—in Barnettspeak—pressed against the glass.

This is because our economic planners have not really developed a strategy on how to respond to globalization well. While our core cities are effectively articulated with global cities and the international centers of trade and commerce, our hinterlands remain isolated, economically and culturally, thus heightening economic and social polarization between cities and regions.

This state of affairs is not sustainable. The rapid pace of growth in certain sectors of society amid continuing widespread want and penury may generate a revolution of rising expectations that could eventually prove disruptive.

Modernization per se supposedly creates contentment and calm, but history proves that the process of change, when left to its own devices, could trigger spasms when it’s fueled by stark inequality in wealth and opportunities. That is why policies like the promotion of greater air linkages with other countries, together with other redistributive measures, are so important if we have to achieve a kind of growth that is inclusive and really developmental.

Why is there so much instability in certain parts of Mindanao and the Visayas? Why have some areas of the country become lairs of daydreamers who kill, maim and rape in their struggles for some puritanical utopia?

To a great extent, it’s because of the disconnectedness of these places from the vortex of change, growth and progress. And this disconnectedness is almost literal: no roads through which farmers can bring their produce to the market, no bridges, no electricity, no potable water, no sanitation, irrigation, no schools, no health centers, no cellular phones, no Internet—therefore no chance for their restless young people to dream dreams and aspire to better lives.

In the words of Barnett, disconnectedness “defines danger. Disconnectedness allows bad actors to flourish by keeping entire societies detached from the global community and under their dictatorial control… [It] allows dangerous transnational actors to exploit the resulting chaos to their own dangerous ends.”

Air agreements are good policies simply because they promote reciprocity. An air agreement is a practical measure in a period when the Doha Round of Trade Negotiations is stuck on the ground. But moving a little further actually wouldn’t hurt. In fact, air agreements are a second best policy to an all-out opening of the skies to promote greater competition and efficiency. The idea now really is bringing in more passenger traffic and business and that option is the surest bet.

Of course, we don’t have to stop at opening the skies; we should also open the seas to promote interisland shipping and trade. For a country of more than 7,000 islands, a competitive and vibrant interisland ports and shipping industry that could only be brought about by greater openness and competition is the most sensible thing to have.

In the course of this initiative, we may have to bring in greater participation by the rest to the world in infrastructure development as well as utilities. That way, we may bring progress fast to those dark, isolated corners of the country where people have never known government and service—and thus have no stake in building communities.

Reaching out is not an option. It’s a matter of survival.

SHIFTING CAREERS: More and more employees are looking to join the ever-growing BPO sector

By David L. Llorito, Louise M. Francisco and Debbie J. Pepito
Research Staff /BusinessMirror, 6 February 2007

For years Xandy, a former human resource officer for a publishing firm, thought she could tolerate the whimsical policies put upon by the bosses. But when top management started bullying her into firing an employee whose only fault was having been born in the Year of the Tiger, she knew it was time to go.

That’s why she’s so happy for being given the option of joining the medical transcription field, one of the fastest-growing business process outsourcing (BPO) sectors in the country in the last five years.

“I was so frustrated. For 15 years, I felt I was like a fish out of water,” Xandy shares. “Now, I work at my own pace provided that I meet all deadlines set by the clients. I work at home. I do not have to commute to and from work daily. No traffic, less pollution, less stress. The best part: there’s no boss breathing down my neck every minute.”

But there’s a trade-off. She says she hasn’t been to the Mall of Asia, St. Francis Square, Market! Market!, Podium and other interesting places where her friends hang out. “Talk about zero social life,” she says. “I work during Christmas and New Year. I guess I have sacrificed a lot but I have no regrets.”

Since shifting careers from human resources to medical transcription she felt her quality of life has vastly improved. She gets between P70,000 and P100,000 a month, significantly higher than what she was getting working as human-resource practitioner. She also has more time to attend to her growing number of pet dogs.

Second chance
Xandy is one of the growing number of career shifters who, frustrated in their previous work, are finding new careers in the BPO business. Called cyberservices by government planners, this industry covers a wide range of activities such as call centers, medical transcription, litigation support, back-office operation or shared services, engineering design, software development and animation. According to recent government data, cyberservices now employ about 250,000 and generates more than $3 billion in service export revenues.

Dada Desembrano, operations manager of, a call-center startup with 65 employees, says about 20 percent of her employees are career shifters. “We have employees who were former nurses, sales workers, physical therapists, English teachers and even dentists,” she says.

A career shifter herself, Desembrano used to manage a Subway franchise in Kuwait. But she got homesick and decided to go home in 2000. Not even the high pay (around P70,000 net) and other perks could persuade her to continue her stint as overseas Filipino worker (OFW). “There’s really no place like home,” she swears.

Back home, she immediately took a job as long-distance operator with the Philippine Long Distance Telephone Co. with a salary of P15,000 a month. After discovering that call-center agents in general receive higher pay and enjoy fast career mobility, she resigned to become a call-center agent. In 2003 she was promoted to supervisor with a P25,000 net pay. Three years later, she rose up the ranks again to become operations manager, getting at least P60,000 basic pay. And in September 2006, she and her friends formed their own company. By the end of 2007, she expects to employ 250 workers.

Despite the increasing scarcity of call-center agents and BPO workers, Desembrano is not worried. “Contrary to popular belief, I actually don’t have problems recruiting staff. This is because these days, there is a growing perception that the career path in the outsourcing industry is quite good. Besides, there would always be career shifters who are lured by better career prospects,” she explains.

Grace Zata, managing director of the Corporate Executive Search Inc., a human-resource outfit, agrees, citing a friend, who used to be an account manager in a multinational advertising agency but quit when she got married and had six children. When she decided to resume her career, she could not find any job in advertising anymore.

“I think call centers provide jobs for that particular segment who are articulate in English but for some reason [such as age, lack of college degree and/or experience, and even sexual orientation] cannot find jobs,” Zata says.

She also mentions her cousin, who is almost 50 and “a bum for many years.” He did not finish college and used to work as a DJ in a radio station. “He got work as an agent and after one year has been promoted to team leader. The call centers have opened the door for career shifters as well as some people who previously could not find jobs,” Zata says.

Top new employer
By 2010, the industry expects the total number of BPO workers to reach more than a million with service export revenues of more than $12 billion. So far, this projection seems to be holding quite well. Since June 2006, the BusinessMirror research staff has been monitoring job advertisements in the three major newspapers—Manila Bulletin, Philippine Daily Inquirer and Philippine Star—and three online jobsites—, and—and found out that about 27 percent of the 199,000 job advertisements from June to December 2006 were for cyberservices.

In terms of ranking, cyberservices occupy the top spot, followed by construction and engineering; manufacturing; wholesale and retail; hotels, resorts and restaurants; media and entertainment; transportation, storage and communication; financial intermediation; health and social work; and advertising and promotions. Consistently, job ads from the cyberservices sector have been growing at double-digit rates from its base in June in the last five months, an indication of the growth in job creation in the sector.

Every year, the country’s colleges and universities produce about 400,000 graduates. For the industry to grow into a million workers by 2010, the industry needs to recruit an average of 200,000 additional workers each year, a figure some industry experts say is probably not achievable. Even if the industry achieves half that target, recruiting about 100,000 new workers each year for the industry would mean that a significant number will have to come from career shifters.

At present, many BPO companies don’t have specific programs to attract career shifters. They simply take them as they come.

“Practically all [our agents] are fresh-graduate recruits as our strategy has always been to backfill at the entry level with new graduates,” said Chris Duncan-Webb, president of the AIG Business Processing Services Inc. “We prefer fresh graduates. For us there is really no great advantage in hiring career shifters. It is much easier to assimilate new graduates into our culture than import from other companies with a different culture.”

He adds: “We shall continue our policy of recruiting new graduates although occasionally we will recruit career shifters if they fit our profile. I am not sure if the number of career shifters applying will increase but I think probably so because BPO is a new and exciting industry.”

So far, the industry doesn’t have statistics on the number of career shifters in outsourcing. But based on anecdotal evidence and interviews, there appears to be a growing number of people who are attracted by its dynamism, for varying reasons.

For Debbie who has just left journalism for a managerial post at a call center, the reason appears to be economic. She needs the money to help pay for her sister’s studies. “At this moment, the decision is not really about the pursuit of happiness. Between journalism and this call-center job that pays a lot higher, the choice is clear. It’s the most logical thing to do,” she explains.

For Bowden, a team manager for a back-office operations firm, his decision to leave teaching is about proving himself even though it would mean getting reduced pay. “I already knew that I was good at teaching. I wanted to see if I could make it in a different field. I like this job; it’s dynamic. I learn new things every day,” he says.

For former banking employee Cherry Angela Solis, who is now a training officer at Ambergris Solutions, another call center and financial services firm, the work environment is what really matters.

“The work environment is very progressive,” she says. “Business practices and technology from abroad are implemented here. The organizational structure is rather flat, which gives plenty of opportunities to move up. Moreover, an employee doesn’t need to wait for an official appointment to get promoted. He/she can apply for the post aspired for. Many of the managers are young, and have equally progressive/fresh management style. They encourage direct interactions with subordinates. The company’s work ethic for managers requires them to provide support to their subordinates. Also, the work environment is fun and informal, while remaining professional in terms of delivering results.”

According to Tet Bachmann who heads a Filipino-owned call-center business in Pasig, hiring career shifters, provided they are given proper training, could have distinct advantages.

“My team leader is a career shifter [from sales and marketing in real estate]. We had one first-time working mom. I don’t think we hired anyone who was a fresh graduate. Three came from food/service industry,” Bachmann says. “One of our agents who did well for one campaign used to be a food server at McDonald’s. I think that people with prior experience in sales or customer service would be good hires for a call center.”

Effect on other firms
Because shifting to a BPO career seems to be a new trend, human-resource experts can’t seem to agree on whether or not it will accelerate in the next few years or on how will it impact the corporate economy.

On one hand, Zata thinks this trend will probably have a limited effect.

“I would think that people who have reasonably good jobs will not want to become agents,” says Zata. “If they are articulate and confident, normally they have good prospects and will probably not shift. But those who move industry [or shift] are those with technical skills for specialized accounts and are paid very well. They are not really career shifters though, in the strict sense of the word.”

Reyes of Optimus, on the other hand, believes the impact will probably be broad-based and will hit small and medium enterprises the hardest.

“I think career shifters to the call centers and BPO industries would come from small- and medium-scale businesses who cannot afford to pay high wages and provide attractive benefits packages like the big companies,” says Reyes. “If this trend accelerates, and it may, if the number of fresh graduates qualified for call centers/ BPOs diminish, it will make things more difficult for the SMEs.”

For Reyes, what is certain is that human-resource managers will now be challenged to put up long-term programs that will encourage the traditional values of company loyalty, sense of belongingness, team spirit, sense of mission and commitment to what the company stands for.

“Some companies, though, don’t mind having a high turnover; this does keep the manpower costs low since the longer an employee stays, the higher will be the costs of keeping him/ her,” says Reyes.

How this trend unfolds in the next few years, no one knows. Nevertheless, the Commission on Information and Communications Technology (CICT) seems to be betting on career shifters to meet the country’s job targets in the cyberservices industry. In back-office operations or shared services, for instance, CICT estimates that more than 40,000 career shifters are going to join the cyberservices industry from 2006 until 2010. CICT also expects career shifters to make up 30 percent of new employees in the medical transcription business from 2006 to 2010.

It’s probably a low estimate considering that based on the latest labor force survey, the country’s underemployment rate stands at 20 percent. That translates to more than six million people who are underpaid, disgruntled, and thus are ripe recruits for BPO work.

“There are a lot of career shifters coming from P&G, Avon and the like. That will continue as we offer very high [salary] packages,” says Mitch Locsin, executive director of Business Processing Association of the Philippines.

Saturday, February 03, 2007

The Philippines and the changing global power equation

A few weeks ago, more than 2,000 leaders from business, politics, academe, media, and civil society will once again meet in Davos, Switzerland for their annual powwow. Many of us probably dismissed it as just another junket for those who control the levers of global power, but this one is special and we should watch it closely. For the first time, these people—the elite of the elites of the brave new global order—are going to admit officially that indeed the world’s power relations are changing and we are in for a more exciting and probably challenging world.

This year’s theme is all about “the shifting power equation” which offers a lot of promises as well as challenges to the global economy. Among these changes they will talk about are the growing prominence of the emerging economies that include China, India, and many other fast-growing countries in the Asia-Pacific Region; the increasing economic and political clout of producers of commodities (e.g. oil, gas, coal, iron ore, among others); the enhanced voice of individuals over institutions, and the rising role of consumers over producers. They are going to talk about new economic drivers, the impact of technology on society and business in a world that is increasingly so interconnected.

Somehow the forces of change discussed there now are fast transforming us. If we are to take advantage of the emerging opportunities in the brave new global order as well as cope with its challenges, we need to understand these processes.

Ten years ago, electronics and semiconductors accounted for only 42 percent of the country’s exports with farm-based products like coconuts, pineapples, bananas, tuna, seaweeds, and baskets having significant percentages. Today, manufactures account for 86 percent of the country’s exports, the bulk of which are electronics and semiconductors. Farm-based products now account for only 4 percent.

Ten years ago, 36 percent of our exports were purchased by the Americans, such that we would always a catch cold, nay severe influenza, when America sneezed. When combined with our exports to Japan, Netherlands, Hong Kong, Great Britain and Germany, more than 70 percent of our exports were purchased only by seven countries. Doesn’t this look like the classic neocolonial dependence? China and India were not even listed among our markets.

Today, America only accounts for 18 percent of the country’s exports. China is now our third largest market next to Japan. Suddenly we can see our friends in the Asean buying about 17 percent of our products. The rest are accounted for by Europe and the rest of the world. What we see here is a diversified export market for Philippine products, a trend that should lessen our vulnerability to external shocks such as a possible slowdown in the US economy. Uncle Sam may sneeze but we don’t have to land in intensive care because the world seems to have developed the capacity to adapt to the fast-changing environment. Of course, compared to 10 years ago, the Philippines has more growth drivers, foremost of which are the dollar remittances, electronics, agribusiness, mining, business and process outsourcing—all connected to the changing dynamics of the global economy.

Of course, there are challenges as well and the forces of change under way are going to highlight these problems if our leaders remain oblivious to this global transformation. For instance, the increasing globalization of business and economic activities suggest that job creation would largely benefit the highly educated and skilled ones who coincidentally mostly belong to the higher social strata. It’s going to accentuate the obsolescence of our education system and heighten the frustrations of those who want to take advantage of global economic opportunities but cannot yet do so for lack of the right skills and capabilities. In effect, these global forces of change could potentially polarize society if the country’s leaders continually forgo much-needed reforms.

Well, this problem is already here. Notice the changes in the urban landscape brought about by outsourcing. Certainly, the ranks of the middle class are growing with the mushrooming of cyberservices in our midst. Notice the steady rise in the sales of cars and condominiums. These changes may offhand make one feel that something good is on the way, that there are lots of reasons to be optimistic about the future. And yet, and yet, some alarming signals need urgent attention and action: for one, joblessness is not improving. That’s because the poor unskilled boys and girls from the slums don’t have the Ateneo accent and the spunk—not to mention the pricey training cost, averaging P30,000, to get into medical transcription. Their only chance to partake of the bounties from outsourcing would be through selling pirated DVDs along Ayala Avenue during night time, the earnings from which would never give them a decent living. Worse, that high-risk job could land them in jail.

Those who abhor globalization per se tend to take comfort in the fact that the Doha Round of trade negotiations is almost dead. The truth is that what really drives globalization are the continuing breakthroughs in logistics and transport technologies. Globalization therefore will move forward like an unstoppable force putting greater stress on our domestic policies on transport, communications, shipping and port operations. We will soon realize that the continuing oligopoly in these sectors, nurtured by the dirigiste policies of the past, is hurting us more than benefiting the blessed few. But reforming these sectors would also prove a challenge especially for political leaders of this country.

These days, one major problem confronting the body politic is the utter lack of legitimacy of many of our political and social institutions. Old-style politics of patronage and corruption partly explains this. But the greater speed of information flows brought about by the Information Revolution is another explanation. Unless our political institutions undergo reforms, this rising voice of the empowered individuals, mediated by technology, are likely to create more schisms in the political system.

Yes, the agenda of reform in Davos is our agenda as well, even though the lifestyles of the rich and powerful may seem so far removed from our daily lives. Those who are there are as scared as we are of not being able to ride change. The one great leveler, therefore, is our having greater passion in understanding—nay, anticipating—the nature and impact of this change and transforming it to our benefit. Sounds like a tall order but it’s the only way to go.